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Adair Turner, a former chairman of the United Kingdom's Financial Services Authority and former member of the UK's Financial Policy Committee, is Chairman of the Institute for New Economic Thinking. His latest book is Between Debt and the Devil.

it is increasingly obvious what will happen. Monetary Policy and individual Central Bank effort are failing at the margin and the system is contemplating coordinated monetary policy (or a Global FED) to stop the deflation ping-pong game that benefits only hedge funds and carry traders that now see currencies as the nexus of volatility. Because there is no ability at the fiscal level--Country by Country-- to do the stimulus that is necessary to reboot demand the IMF will do it everywhere at once on their own (pristine) balance sheet using Central Bank investments in the SDR to leverage development and CAPEX.

this installs the SDR as the new Global Resrve replacing the aging USD andf paving the way for (via annual rebalancing) restrictions on trade imbalances that are systemic risks.

the SDR aslo insralls the IMF (or the BIS more accurately) as a Global Monetary Regulator that can coordinate monetary policy everywhere and also oversee homogenous regulations on finacials (via BASEL3) that will eliminate jurisdiction arbitrage.

this modernization of the architecure combines with what is--in a sense--a monetization of sovereign debt that is already a currency equivelent (if rates are zero money and debt are the same) will be the casis for Bretton Woods 3 and work for the next 50 years or so.

A crucial matter. From the essay it is suggested we are doomed unless we can formulate the right rules and distribution of responsibilities.
Drawing up these these national/international rules is one thing. However enforcement may be the key problem. For example, central banks tend to be 'independent' in name only, and the experience of the 'independent', but unprotected, audit profession is that it has been so undermined by politics that it must surely scale back its promises to stakeholders.

Maybe traditional tools, to tackle deficient demand, are not enough in the era of technological evolution where insecurity of jobs vanishing and inequality gap widening, makes people and companies very nervous about the future!
How about structural, monetary, and fiscal tools to be combined with other measures to ensure the effectiveness of the policies in order not to fail?
Wouldn't be rational that some additional but indispensable measures like :
* compulsory global reduction of working hours (to no more than 5 maximum per day),
* QE diverted to real economy and not to some ambiguous financial products or companies wich will not use them to the production section
* 'inactive' money hoarded to some taxheaven to start flowing to the real economy, otherwise to be heavily taxed
could ensure that all 'helicopter money' will be used to boost development not only growth?
All countries should comply with the additional measures (if global growth is the question) and each country, according to the situation of its economy might implement either structural or monetary or fiscal expansion or any combination of them.
Isn't about time to see the big picture?

Private enterprise, preferably centered in the EM markets could quite easily create a financial product and thus process to use some of the QE created bonds to enhance the credit ratings of the bottom 150 national economies. This would in turn stimulate the much needed demand both within the 150 and upward to finally include the G20 as well. http://www.sevenrealmsgroup.com/index.html

In this matter I have not seen any reliable data about what percentage of annual revenues of banks corresponds to interest received by reserves saved in the central bank arks. If this account for a high percentage of annual revenues (something like 20%), therefore NIRP is going to be a big pressure over banks margins. But what if it is only a 5% of annual revenues? Maybe it is not so harmful (just looking that effect). If someone has this information would be a greta help in trying to have a measure of the real impact of NIRP. Regards.

A Short Tract on Financial Stability
By Edward C D Ingram
A financially stable economy would be much safer for everyone. Economics is complicated but it does not have to be. In fact, a financially stable economy would be remarkably simple.
This book takes a science-based approach to the reforms needed, using long accepted norms and principles, and two key observations made by one of the world’s most influential economists, Lord J M Keynes, in his landmark paper 'A Tract on Monetary Reform', published in 1923. This new book is expected to have a significant impact on macro-economic thinking.

BACK COVER
REVIEWS - more are promised
Andrew Pampallis, retired Head of Banking at the University of Johannesburg wrote, “When people realize what you have done all hell will break loose.”

Alan Gray, Editor-in-Chief, NewsBlaze, writes, “The Macro-economic Design group’s elegant solution is so simple that it has eluded the big economic thinkers of our time, because everyone was looking for a complex solution to a complex problem.”

Professor Evelyn Chiloane-Tsoka from the University of South Africa, says “These ideas will become prescribed reading at universities.”

Dr Rabi N. Mishra, Economist, and a Chief General Manager, Reserve Bank of India writes: “This book will inspire rethinking on the perimeters of economic thought and theory, and their practical use in policy making. A ‘should-read’ for budding researchers in Financial Economics to expand its horizon.”

Dr. Azam Ali ex Senior Economist Bank of Pakistan writes, “Dear Edward, I am following your endeavours of rewriting the economic framework with great interest and am on the same page with you on almost all the issues you raise from time to time.”

Dear Lord Turner, I regret that I failed to catch your ear in London last year when we met.

You should read my draft book and later the book itself on financial stability.

The idea of helicopter money is correct but the obstacles to in in terms of how it should be deployed and in terms of the inherent financail instability which is built into the economy seems to present an insurmountable barrier to making a full recovery.

My book explains why and how this happes and what can be done about it.

The head of economics at a leading university read my script over the weekend and he wrote that this part of my book is key. It is key to getting the world economy moving again.

Sure. Let's tax those who saved for retirement and refused to invest with the vultures in the business kingdon. Let's just take their money if they are too worried about the future to invest or to buy crap from some Chinese factory or over pay for some monopolistic good or service.

This is a very well reasoned and clearly articulated article. I appreciate the author pointing out the core problem is insufficient demand globally and that central banks and Treasury department must work together to quickly stimulate demand to meet inflation target.

Central banks through zero/negative interest rates & QE's produced slow or no growths, market instability and uneven wealth distribution etc. Due to relatively high national debt and large deficits already in most G20 countries, most G20 countries are hesitant to have more deficit spending.

The author proposes that the central banks finance their countries' deficit spending to immediately stimulate demand. Further, I suspect that these actions need to be coordinated at the G20 Finance Ministers and central bankers levels to make it effective.

The world governments combined have a $225 trillion debt. There are no structural reforms except balanced budgets and aggressive reduction. It is better to go through the pain now before a WORLD DEPRESSION falls upon us.

Now that the gap of common wages is at a near maximum of course nominal demand is suffering from chronic deficiency. Structural reforms have maximized global wage insecurities to more advanced economies. Now if only the same wage structural reforms could affect economists .......maybe you would be viewing and writing about "street economic realities" from experiential perspectives....

Brilliantly articulated piece on why Central Banks are out of business - because monetization of fiscal deficits requires The Chancellor's tools.
The Governor can implement and control the extent and deployment - but ultimately up to The Chancellor to secure the mandate.
Of course, ingenious Governors can create the fait accompli - leveraging the targets enshrined that empowers them.
But the underlying predicament is entirely manmade - failure to understand that demand is unlimited.
Failure to fathom that Demand never disappeared - is myopia.

Irresponsibility is not inevitable, as stated it merely requires rules.

A very simple rule could be that as long as immediate and predicted inflation are under target, ( currently 2% ), the central bank could monetise national debt equivalent to 2% of GDP, to be applied to payments next in the queue and not to be repeated for at least 4 months, so that inflation effects, if any, could be measured.

This allows the central bank to whittle away at the national debt in small measured increments. The effect should be to diminish fears of being overrun with debt, and consequently improve the psychology that allows politicians to see "fiscal space".
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The rule would allow the Central Bank to monetise national debt up to 6% of GDP per year, if inflation remained subdued.

This should not be disruptive since national debt levels for the large countries tend to be in the 70 to 120 percent of GDP range ( roughly ).

The immediate impact of this rule would be that governments would have a bit more cash on hand as the central bank took over payments coming due. This might not be stimulative if the money was not spent or merely used to reduce debt further.

Over a period of 5 years, assuming inflation remained contained and the central bank monetised to the limit, debt would be reduced 30%, moving USA or UK debt levels from the 80 percent range to the 50 percent range. That might change the psychology enough to allow fiscally expansive policy to be acceptable to those otherwise opposed.

Monetisation rules for infrastructure spending would have to be even more restrictive that debt reduction rules, since they increase demand, use resources, employ people and have significant multipliers.
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Both new debt and new money could do good provided they are allocated were they are needed and produce sustainability (Social, financial and use of resources).
If new money are handed over to the 0,1 % in the same way as the new debt has been done it only further inflate asset bubbles.

An excellent article. I really hope that policy makers finally start listening to people like Mr. Turner, instead of to the stuffed shirts droning on and on about unspecified "structural reforms". The ability to string long words together does not equal wisdom.

Central banks can at best smooth things over in transition periods between changing sentiments. What they can't do is fix what the banks broke ending in 2008, or inequality, or private hoarders of capital. These are things that need to be fixed. Capitalism only works when capital flows freely and it is not flowing freely. We need laws that prevent large accumulations of capital (wealth tax, land tax) and move that capital to the best and brightest entrepreneurs. Then you will see movement - before then it is mostly like rearranging the deck chairs on the Titanic whether you have 1% interest or negative 1%.

Someone calling for rational, carefully planned multifaceted interventions? While these seem sensible and have a chance to succeed, these would depend on decision makers who are capable of engaging in this kind of thinking with an eye towards longer term outcomes rather than shorter term gains and election politics. Possible? Maybe. Likely? Probably not in today's world. Not unless or until as one comment notes below a crisis occurs. Where is FDR when we need him?!?

The fact it takes 3 years for labour reforms to feed thru is neither here nore there. It is a bit like saying I will walk a very long way on foot instead of waiting for a bus because I have to wait for a bus - and walking and watching the bus drive by. In fact the 3 year lag from action to job uptick - which has to be the objective - is pretty much the case whatever is it not. And that is without a jobless recovery due to automation

We have had 8 years of ridiculous thumb twiddling and gushing bank comforting and are at a stagnation point. France is the EU test case on reform as it is the most dire; and it repeatedly stalls. Valls latest attempt to reform look to be being blocked by the 'every day is Bastille Day mentality'. This is little morer than a re run of Sarkoszys failure.

Central Banks are quite correct to point out guvnts need to implement positive labour policies. As helicopter money is yet another short term intervention without dealing with the core issue it will be ineffective. Helicoptor money is simply another attempt to offer dillution as a solution when so much QE dillution has already occurred without significant growth

The unfortunate fact is the West is poorer and needs to recognise that and act accordingly. The measurement never discussed in this the the steady uptick - decade on decade - in youth unemployment in countries that claim to have a growing old age demographic problem and growing imbalance on tax revenues and care provision outgoings. It is a red flag

The only reason the UKs demographic is ok is because of immigration. The only reason the UKs labour reform occurred is N Sea Oil in the 80s left no alternative, neither these phenomena have in reality occurred due to some planned strategic guvnt action, more by accident

The story of the EU is the reform of labour practice is near impossible in a democracy unless crisis is imposed or developes, so there will be a crisis

Consumers are constrained by private debt, govts are currently not so constrained by debt especially the US and Germany. They should be spending on R & D and infrastructure but are not.

Private debt is not the same as govt debt.

@ Steve Hurst

Labour reforms are wage cuts, just be truthful and say it.

Many consumers throughout the world have in the last 8 years endured a real wage cut because their wages have stayed static while housing costs in particular have risen.
I can't see that this wage cut has led to firms using their increased profits to employ more workers.

Why not? - It is because of a worldwide lack of aggregate demand, exactly as the article says. Not a lack of cheap workers.

See also:

In the first year of his presidency, Donald Trump has consistently sold out the blue-collar, socially conservative whites who brought him to power, while pursuing policies to enrich his fellow plutocrats.

Sooner or later, Trump's core supporters will wake up to this fact, so it is worth asking how far he might go to keep them on his side.

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